Pledge Finance

8/3/2019 Pledge Finance

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Prof. Rushen Chahal


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PLEDGE

What it is ?

Bailment of goods as a security for

payment of a debt or performance of apromise.

Bailment or transfer of possession

Only possession but not the ownership


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RESPONSIBILITIES OF PLEDGEE

Must exercise reasonable care.

When pledged goods are stolen or robbed

-- bank can not be held responsible whenexercised reasonable care.

For loss or deterioration -- responsible.


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RIGHTS OF PLEDGEE

Right to retain

Right to sellby giving reasonable notice. Sale need not be public.it can be private

also

Can file a suit.


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ESSENTIALS OF PLEDGE

FINANCINGGoods / Commodities be stored under bankslock & key or in warehouses against warehousereceipts or with clearing agents

Merchandise register & drawing power registerto be maintained

Nature of goods, value, perishability, storagefacility to be verified

Periodic inspectionProper insurance

Display of banks signboard


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But the needs of the following

are not met

Small farmer storing in Private Warehouse

Private RG owner + Aggregator


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Indian Agricultural Scenario- A perspectiveIndian Agricultural Scenario- A perspective


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WHY THEY NEED PLEDGE FINANCE?

To Prevent distress sale by producers.

To Promote cleaning, drying and gradingat farm gate.

To Promote proper storage facilities.

To Facilitate better price realization byfarmers.

To Avoid glut conditions in market.


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HOW THIS BECAME A BURNING

ISSUE? Due to Gramin Bhandaran Yojana, Cold storagescheme, AMI and the Creation of Huge storagecapacities in the private sector ( >150 lakh MT)&

GOIs mission

To prevent distress sale of food grains and otheragricultural produce immediately after harvest. To reduce quantitative and qualitative losses due to storing

of food grains in substandard storage. To reduce pressure on transport system in the post harvest

periods of peak supply.

To help the farmers in getting pledge loans against theirstored produce to meet immediate financial requirement.


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Dilemma of the Conventional Banker


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CONTMEPORARY TOOLS FOR

APPRAISAL

Access to Time series data on variouscommodities

Sourcing information from NCDEX,MCX

Keeping in touch with NCMSL andaccessing their services

Studying market trends & mark to

market on regular basisElectronic back bone


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Collateral Management

National Collateral Management Services Limited

promoted by NCDEX Accreditation of Warehouses - parameter based

Robust grading by reputed agencies

Dematerialization of Warehouse receipts

Bank lending against warehouse receipts Farmers deposit goods in accredited warehouses

Goods assayed and graded

Finance provided to farmers by banks againstwarehouse receipt


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RESULT

Smart work by NEXGEN

Customer happy with Pledge Finance

Documents

Pledge Finance